Leveraging on the Mining Sector for Economic Stimulation in Zimbabwe Godknows Njowa Pr Eng Venmyn Deloitte Contents of the Presentation The mining sector will be the centrepiece of our economic recovery and growth. It should generate growth spurts across sectors, reignite that economic miracle which must now happen… Quote from the President’s speech • Introduction • Geology of Zimbabwe • Zimbabwe’s Mineral Wealth • Contribution of the Mining Industry to the National GDP • Key Issues in Mining (Africa Focus) • Economic Development & Competitiveness Model • Way Forward • Conclusions and Recommendations 2 © 2013 Deloitte Touche Tohmatsu Limited Geology of Zimbabwe 3 Zimbabwean Mineral Wealth • 4 A perspective on attracting the right investment for mining companies in Zimbabwe © 2012 Deloitte Touche Tohmatsu Limited Zimbabwean Minerals Industry Industrial minerals include tantalite, tungsten and mica among many other minerals The Great Dyke is a phenomenal geological Industrial feature which is Chromite Minerals being well-mined and exploited PGMs Copper More than 6000 discoveries, 15 Mineral of which have commodities that delivered +1Moz Coal & have historically of gold Coke been produced Gold Great coal (USGS, 2012) reserves, with significant Iron & Silver opportunities Steel Relatively good infrastructure Cobalt Nickel 5 © 2012 Deloitte Touche Tohmatsu Limited Exploration and Geological Information (Critical Success Factor) Building an exploration sector in Zimbabwe Zimbabwe - proud history in exploration and mining Historically dominated by “Mining house” system Concept of independent exploration not well established in Zimbabwe to date – need to focus Limited mainstream investor interest in Zimbabwe – most juniors are foreign (misconception that ease money is in mining) Aussies and Canadians most active in developing the sector In recent times the Chinese and the Indians have also joined the space 6 © 2012 Deloitte Touche Tohmatsu Limited Contribution of the Mining Industry to GDP 7 There is big growth across the continent, however, it has shifted into the mid-section of the continent. Regional GDP Growth % Real GDP Growth GDP Contribution 2013 FDI Growth 2011 to 2012 3% (2012-2016 forecast) 6% North 21% 40% South West East Above 10 % Central 7.5% to 10% 30% 5% to 7.5% 2.5% to 5% Below 2.5% 8 © 2014 Deloitte Touche Tohmatsu Limited Sources: Business Monitor International , www.momentuminv.co.za , "Nationalisation in South Africa: A debate that will persist". The Economist, BMI, UNCTAD @012, IMF, Economic Intelligence Mining no longer dominates the South African economy *Mining Industry Value incorporates the value of mining activity and downstream services • Mining's contribution to the national GDP has fallen from 21% in 1970 to 5.2% in 2013. • It still represents almost 60% of exports, however. • In Zimbabwe, only the platinum and the diamond sectors are in a slightly better position and all the other sectors are in intensive care. 9 © 2014 Deloitte Touche Tohmatsu Limited Sources: Business Monitor International , www.momentuminv.co.za , "Nationalisation in South Africa: A debate that will persist". The Economist GDP Contribution to the Economy Zimbabwe’s Actual and Estimated Mining Contribution to GDP (1995(1995----2015)2015) 17.80% 16.90% 15.70% 15.00% 13.00% 12.00% 8.00% 4.30% 3.80% 3.70% 4.00% 3.90% 1995 1996 1997 1998 1999 2009 2010 2011 2012 2013f 2014f 2015f • Mining Contributes approximately 55% of the country foreign earnings • Zimbabwe’s manufacturing sector has been hamstrung over the past 15 years, therefore capacity for manufacturing beneficiation is limited • Agriculture has also not performed as anticipated. 10 Key Issues in Mining 11 Key issues across Mining in Africa Balancing National Declining Ore Grades Economic & Investment Interest (Policy) Lack of FDI Human Capital Heightened Sovereign Rising Costs of Risk Production Critical Infrastructure Finding Funding Shortage Social License to Innovation Imperative Operate 12 Our research shows three main factors are impacting the industry over all others at present Balancing National General trend across Africa that Economic & Investment governments will benefit from a % Interest ownership of all mineral companies Huge Capital Many countries in Africa lacks the Requirements capital requirements to develop the mineral wealth they have in their countries mainly due to Policy Risk Critical Infrastructure Many countries are currently Shortage producing only 50% of power required for the development of mining projects across Africa • Wages over the past decade have increased by levels way in excess Rising Costs of the Consumer Price Index. • Wages account for between 40% & 60% of costs in the mining industry 13 Striking A Balance – Governance & Tax 14 Striking A Balance – Infrastructure Please insert our key infrastructure data from Striking a Balance • Infrastructure in the form of electricity and transport are precursors to the development of mining in Africa • In 2013 there were approximately 330 infrastructure projects to the value of $ USD223bn across Africa • 48% of the planned investment is not in normally recognized mineral resource economies 15 Challenges in the mining industry in Zimbabwe, CAPITAL, CAPITAL Lack of • Little or no exploration has been occurring in the country exploration ‒ The need for major investment in understanding our mineral wealth. None • Mineral resources are not compliant with international mineral resource Complaint standards (JORC, SAMREC & NI 43-101, SME Guide 7) mineral ‒ Understand our mineral wealth and keeping an audit trail of the geological resources information • Stay-in-business capex and on-going replacement capex High capex requirements are significant requirements ‒ Nature of the business, continuous recapitalisation projects required Lack of • Power is a problem affecting most African countries Consistent • Affects most of the beneficiation projects Power Supply ‒ Need for new power solutions or IPPs specifically for mining • Nationalisation of mineral assets is a global trend and is Indigenization not peculiar to Zimbabwe • Challenge is that the indegenisation in Zimbabwe is not clearly understood by some investors 16 © 2012 Deloitte Touche Tohmatsu Limited Five Key Success Factors in Mining In mining, when we consider what success looks like, it is our experience that five key factors set any mining project or operation up for a successful outcome. These are: • A good mineral deposit • The deposit is located in an economic region with good governance and consistent application of civil and tax law • Infrastructure in the form of roads, rail, ports, electricity and communications to support the mine should be available and functioning • A well understood inbound and outbound supply chain supporting the mine and points to market • A competent and cohesive team which safely works together. • You rank the above on a scale of 0 to 5 (zero being poor and 5 being excellent) • Can we rank our projects above 20. Lets have a poll 17 © 2013 Deloitte Touche Tohmatsu Limited Economic Development & Competitiveness Model 18 Economic Development & Competitiveness Deloitte’s Model and Approach Application of the Model and Approach Deloitte’s Economic Development and Competitiveness Practice assists national and local governments, government institutions, development partners, and foundations to develop and Governments of Ethiopia, Kenya and Ghana – Defining Competitive execute strategies for accelerating economic growth and competitiveness. Economic Strategy, Upgrading Business Environments, Attracting Foreign Direct Investments, Govt Capacity Building (Design and Launch Institutions for Deloitte’s approach for accelerating economic growth is based on the concepts of competitiveness and productivity, building heavily from Monitor co-founder Michael Porter’s Growth, Ensure Institutional Performance) theory of Competitive Advantage and the Competitive Advantage of Nations. 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